American Taxation

HOW A NATION BORN OUT OF A TAX REVOLT has—and especially hasn’t—solved the problems of taxing its citizens

The people upon whom the burden of these new taxes fell, naturally, did not like it. They never do. In England, for instance, the king was expected to operate the government with the income from the crown lands, except under extraordinary circumstances. When a weak and inept king tried to impose new taxes on the nobility anyway, the result, in 1215, was Magna Carta, and King John was forced to swear that “no scutage or aid may be levied . . . without [the nobility’s] consent. . . .”

Magna Carta was the start of a long struggle between the crown and what would by the end of the thirteenth century develop into Parliament, a struggle that is at the very center of British constitutional history and thus of our own. In 1649 that struggle cost Charles I his head, and in 1688 his son, James II, his throne. The following year the new sovereigns, William and Mary, gave their assent to the Bill of Rights, which, among much else, specified again that no new taxes could be laid on the people without the consent of their representatives in Parliament.

But for all the blood spilled over taxes in its long history, Britain in fact was the most lightly taxed major nation in Europe, because the English Channel freed the country from the vast expense of a large standing army. More lightly taxed still were the inhabitants of the new American colonies. Many colonial officials served without pay, as did the colonial militias. What taxes there were were principally of four kinds.

THE POLL TAX WAS SIMPLY AN ANNUAL TAX PER PERSON without regard to ability to pay. It was imposed in all the colonies but was most important in the South. In modern times the poll tax ceased to be a major source of revenue and survived only as a means of keeping the very poor, and usually black, from voting. In 1964 the Twenty-fourth Amendment to the Constitution forbade the use of the poll tax for this purpose, and this ancient and regressive tax vanished from the American political landscape.

The Southern colonies also favored import and export duties as a means of raising revenues.

In New England, however, the property tax was dominant from the beginning, and it soon became the primary revenue source in the middle colonies as well. In the beginning it was often assessed on all forms of property. Today it is largely restricted to real estate and remains the main source of revenue for most local governments.

There is little mystery regarding this geographical divergence in favored taxes. In the South the dominance of large property owners over local governments made the property tax politically difficult, while New England was characterized by small property owners, with often limited means, and a large and soon wealthy merchant class. The New England merchants, already active on a global scale, naturally opposed customs duties. Thus, from the earliest days, American taxation was like all taxation: The burden of it has tended to fall lightest on those with the most political power, and wealth, of course, easily translates into political power.

THE BUREAU OF Internal Revenue is by no means the least of the Civil War’s legacies to the country.

FINALLY, THERE WAS THE faculty tax, the ancestor of the modern income tax. In 1643 Plymouth Colony passed a statute that imposed a tax on its citizens “according to their estates or faculties, that is, according to goods[,] lands[,] improoued faculties[,] andpsonall abilities.” The faculty tax was a crude instrument, taxing people according to the presumed earning power of their professions, trades, and assets, regardless of how much they actually took in.

Greatly helped by low taxation, more and more wealth was being generated by the American economy by the middle of the eighteenth century, and this naturally attracted the attention of the cash-strapped mother country. The Seven Years’ War, fought from 1756 to 1763, was hugely successful for the British Empire but, like all wars, was also hugely expensive. The government in London wanted North America, where much of the war had been fought, to help pay the bill.

The British political class, steeped in mercantilism, saw colonies as existing for the benefit of the mother country and therefore ripe for plucking by taxation. The American colonists increasingly saw them as existing for the sake of their own citizens, and these were represented not in the Parliament at Westminster but in their colonial legislatures.

When the British government sought to impose taxes on the American colonies, in flat contradiction, as the Americans saw it, of the British Bill of Rights, the resulting hissing was immediate and ferocious. Today it would be called a political firestorm, and it soon forced the repeal of the taxes. Although the British government continued to insist on its right to tax the colonies, it sought to meet the colonists’ demands halfway and raise revenues by other, less objectionable means. In an atmosphere of increasing political strain, however, they all failed and, indeed, made matters steadily worse. The result was revolution.